May 12, 2010 – During the health care reform debate, discussion of the 340B program focused mainly on its expansion and steps to improve its integrity. But other matters received plenty of attention behind the scenes, including long-standing efforts by 340B hospitals to win exceptions to the rule barring them from buying outpatient drugs through group purchasing organizations (GPOs).
When the 340B law was drafted in 1992, drug manufacturers pushed hard for the GPO prohibition, arguing that they already would have to provide steep discounts to hospitals enrolled in 340B. Hospitals are the only type of 340B provider subject to the prohibition.
When bills to expand and improve 340B were first introduced several years ago, they included language that would have eliminated the GPO prohibition altogether. However, amid concerns from both the Health Resources and Services Administration (HRSA) and the government’s 340B Prime Vendor Program (PVP), Safety Net Hospitals for Pharmaceutical Access (SNHPA) and other hospital advocacy groups agreed to drop their bid to end the prohibition and to lobby instead for what they describe as reasonable exceptions to the rule.
SNHPA says the exceptions would spare 340B hospitals the expense of buying drugs at their more expensive wholesale acquisition cost (WAC) when the drugs cannot be bought at a 340B price. Such situations arise, they say, when drugs or therapeutic products are in short supply, perhaps most notably intravenous immunoglobulin (IVIG). They also occur when manufacturers do not participate in 340B, when they are not in compliance with 340B rules, and when hospitals elect to buy their Medicaid outpatient drugs outside of 340B, commonly known as the Medicaid carve-out.
In addition to those circumstances, language struck from the new health care reform law also would have allowed GPO purchases when 340B prices were unavailable for reasons beyond a hospital’s control; when generic drugs were available for less than 340B-discounted brand-name or generic counterparts; or when buying outside of 340B would have eased a hospital’s burden of managing both an outpatient and inpatient drug inventory.
As health care reform neared the finish line in Congress, hospital advocacy groups had agreed to narrow the list of exceptions. But they were all included in the main reform bill signed by President Obama. A few days later, they were dropped (along with 340B’s extension to the inpatient setting) when Congress passed and Obama signed a related budget measure.
The reform law, however, did lift the GPO prohibition for the new categories of rural hospitals that have been allowed to join the 340B program. Sources say lawmakers feared that small rural hospitals, which rely heavily on GPOs, would have shunned 340B if the prohibition remained in place.
HRSA, PVP and Drug Firms Were Opposed
The exceptions to the GPO ban were strongly opposed by HRSA and a coalition of major drug companies. Some 340B community health centers opposed the proposed rule change while others expressed support.
PVP, which is operated by Apexus, a nonprofit subsidiary of the buying group Provista, was also a strong opponent. PVP’s key role is to negotiate discounts on 340B outpatient drugs below the mandatory 340B ceiling price. It also negotiates discounts on vaccines, diabetes meters and test strips and other products not covered under 340B. The prime vendor is the only legal means of group purchasing for outpatient drug products for 340B disproportionate share (DSH) and children’s hospitals.
In its communications to key lawmakers on Capitol Hill, Apexus warned that allowing exceptions to the GPO prohibition would threaten PVP’s success and lead to its eventual demise. The change, it argued, would undermine its ability to negotiate sub-ceiling prices on behalf of all its customers, particularly smaller hospitals and health centers that lack the collective power to negotiate with the drug industry.
Christopher Hatwig, the Apexus vice president in charge of PVP, told the Monitor that he understands hospitals’ frustrations about the GPO prohibition. But, he says, “legislating broad, sweeping changes jeopardizes the program and hurts covered entities.”
Drug companies echoed PVP’s points. They predicted that including GPOs in 340B would needlessly raise their costs, compromise the integrity of their confidential prices, sow confusion, and let ineligible providers obtain 340B pricing.
“Allowing (GPOs) to participate in the 340B program makes no sense,” the Coalition for Government Procurement (CGP) said in a letter to key senators. The trade group includes makers of pharmaceutical and biological products. “We strongly believe (their) participation … will cause much more harm to the program than good ….”
Talecris Biotherapeutics, a major IVIG maker, also urged Congress to remove the exceptions language. “We are concerned that the bill’s broad exceptions to the GPO prohibition would undermine (PVP) and harm the smallest 340B entities,” it said.
Premier Backed Exceptions
Premier, one of the country’s largest GPOs, took a lead role in pushing for the exceptions’ approval.
“The crux of the issue is that certain drugs are not sold in sufficient quantities at 340B prices to meet the needs of hospitals,” says Wayne Russell, Premier’s senior director of pharmacy. “Everybody knows that hospitals have been forced to go around the (GPO prohibition) to get adequate supplies of products that aren’t available at the 340B price or at that price in sufficient quantities. Our attitude is we have a law here that no one can meet by definition and that’s not being enforced. So let’s modify it to it meets everybody’s needs.”
Hatwig says he looks forward to working with GPOs and hospital organizations to develop the solutions to challenges created by the GPO prohibition. He adds, however, that he wants the matter addressed through the administrative process rather than by Congress.
While the new health care reform law maintains the status quo on hospitals currently enrolled in 340B, it exempts some newly eligible hospitals from the GPO prohibition. All critical access hospitals (CAHs), as well as most if not all of the sole community hospitals (SCHs) and rural referral centers (RRCs) enrolled in 340B, will be able to use their GPOs for outpatient drugs. Newly eligible cancer hospitals and children’s hospitals however, are still subject to the prohibition.
The exemption for new rural covered entities is not totally clear cut. SCHs and RRCs with Medicare DSH adjustment percentages above 11.75 percent were eligible for 340B prior to the new health care reform law and subject to the GPO prohibition. The new law simply reduces their eligibility threshold to 8 percent. It remains to be seen if SCHs and RRCs already enrolled in 340B will now be allowed to use a GPO for outpatient drugs.